Favcy Insights: What Founders Should Know About Venture Debt and Hybrid Rounds

A few years ago, raising equity was every founder’s dream. The bigger the round, the louder the applause. But in 2025, founders are thinking differently. The question isn’t how much can I raise? Anymore, it’s how smartly can I raise it?

As the startup ecosystem matures and capital becomes more selective, founders are reimagining how to fund growth without giving up too much ownership. That is where venture debt and hybrid rounds are changing the game.

Why Venture Debt is Gaining Ground

In India, venture debt has quietly become one of the most efficient funding tools for startups. Over 1.2 billion dollars was deployed in 2024 alone, showing how founders are choosing control over dilution.

Unlike traditional loans, venture debt does not need collateral. It is conviction-based, where lenders back the founder’s credibility, investor support, and business performance. Used well, it acts like an amplifier, helping startups:

• Extend their runway

• Fund growth initiatives

• Avoid unnecessary equity dilution.

When timed right, it is not just about survival capital; it is about strategic capital.

The Rise of Hybrid Rounds

Hybrid rounds blend the best of both worlds: equity and debt. They are becoming popular among early and growth-stage startups that want to raise capital while retaining more ownership.

These rounds signal a new level of financial maturity. They show investors that a startup is not chasing valuation hype but managing its resources with discipline. For revenue-generating startups not yet ready for a large equity raise, hybrid rounds are proving to be the ideal middle path.

The Caution Every Founder Should Take

Of course, with flexibility comes responsibility. Debt is leverage, and misuse can quickly turn it into a liability. Before taking this route, founders must ensure:

• Predictable cash flows

• A clear plan for fund utilisation

• Alignment between equity and debt investors

Debt should fuel growth, not pressure it. As one investor rightly said, debt does not kill startups; misused debt does.

A Shift in Founder Mindset

This growing trend toward structured capital reflects a new kind of founder mindset, one that values efficiency over excess. The best founders today are not just storytellers; they are strategists, designing their capital stack to fit their business, not the other way around.

Venture debt and hybrid rounds represent that evolution, a sign that Indian startups are growing up, not just scaling up.

At Favcy Venture Builders, we have seen this transition firsthand. Founders are becoming more intentional about how they build, fund, and scale. As India’s venture ecosystem continues to evolve, this discipline in capital design will separate the companies that grow fast from those that grow strong.